Collection agencies and the prohibition under Section 3:5 of the Wft

Answer:

What does a collection agency do?

Usually a debtor pays its debt directly to the creditor. However, some creditors commission the collection of debt payments to a third party, such as a collection agency. In this case, the debtor pays the collection agency and the collection agency then forwards the payment to the creditor.

Does this construction involve repayable funds?

In other words, does the collection agency retain repayable funds, in which case the prohibition under Section 3:5 of the Wft applies? No, this is generally not the case.

The debtor’s payment to the collection agency means it has fulfilled its payment obligation with respect to the creditor and is discharged from this obligation. It cannot claim reimbursement from the creditor or the collection agency. Therefore, there is no question of repayable funds and the prohibition under Section 3:5 of the Wft does not apply.

The collection agency will usually be required to transfer the collected funds to the creditor. Again, this situation does not involve repayable funds, since it does not concern repayments from the collection agency to the creditor.

Customer accounts foundation

Many collection agencies use a separate customer accounts foundation. By receiving payments from debtors on such an account, the agency ensures that the funds payable to the creditors are segregated from its own funds.

The use of a customer accounts foundation does not matter for answering the question of whether payments through a collection agency involve repayable funds. In such a case, we look through this construction and determine on the basis of the actual underlying activities of the collection agency whether or not repayable funds are involved.

Exception

Only in the event that debtors have paid the collection agency and are still able to claim repayment – in whatever form – for as long as the collection agency has not yet passed on the debtors’ payment to the creditors, may there be a situation involving repayable funds. In such a case, the rules for onward payment described here apply.